Financial mngmnt

timer Asked: Nov 12th, 2015

Question description

Fred and Ethel are both considering buying a corporate bond with a coupon rate of 8%, a face

value of $1,000, and a maturity date of January 1, 2025. Which of the following statements is

MOST correct?

a. Fred and Ethel will only buy the bonds if the bonds are rated BBB or above.

b. Because both Fred and Ethel will receive the same cash flows if they each buy a bond,

they both must assign the same value to the bond.

c. If Fred decides to buy the bond, then Ethel will also decide to buy the bond if markets are


d. Fred may determine a different value for a bond than Ethel because each investor may

have a different level of risk aversion, and hence a different required return.

please give a reason for you answer.

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